So just what did Ellison buy in Hawaiian island?

San Francisco Chronicle
Wednesday, June 27, 2012

Kathleen Pender, Chronicle Columnist

Many billionaires and celebrities have bought private islands, but they are usually uninhabited dots where the owners don't have to worry about things like water wars, union contracts and elected officials.

That's why Larry Ellison's purchase of Lanai, Hawaii's sixth-largest island with 3,100 inhabitants as of 2010, raises so many questions.

Ellison, chief executive of Oracle, plans to buy 98 percent of the island's acreage, along with resorts and other properties, from David Murdock's Castle & Cooke for an undisclosed sum. The sale is expected to close Wednesday after the Hawaii Public Utilities Commission on Monday gave interim approval for the transfer of three public utilities included in the deal.

Here are answers to some questions about this unusual transaction:

Q:How big is Lanai?

A: It is 141 square miles, or roughly 89,000 acres. Castle & Cooke owns 87,700 acres, according to tax records. It is 18 miles at its longest and 13 miles at its widest, with about 47 miles of coastline. It has no stoplights or chain stores and one school.

Q:How is Lanai governed?

A: Like the rest of Hawaii, there is no city government. Lanai is part of Maui county. It has one of nine seats on the Maui County Council; Molokai has one and Maui has seven. Lanai is represented in state government by a representative and senator who also represent other islands.

Q:What is Ellison buying?

A: In a PUC filing, Castle & Cooke says it is selling "more than 88,000 acres of land" including 248 acres of commercial and residential property in Lanai City (the island's only town), two resort hotels managed by Four Seasons, two golf courses and clubhouses, Koele Stables, a clay-shooting facility, an interest in La Ola Solar Farm, administrative buildings, employee rental housing, recreational facilities and three public utilities.

One utility distributes all of the island's water, one treats wastewater, and one runs a shuttle service around the island. There is no public transportation.

The properties are said to be losing $18 million to $25 million a year.

Murdock has retained the right to develop a controversial wind farm on Lanai that would transmit power to Oahu under the sea.

Q:How can one person own 98 percent of an island?

A: Virtually all of Lanai has been owned by a single person or company for more than 100 years. This is because one party after another sold the whole island rather than subdividing it, "usually the result of bankruptcy," says Kepa Maly, executive director of the Lanai Culture & Heritage Center. "Another major factor is that water resources are limited, and development opportunities are tied to water."

Warren Nishimoto, director of the Center for Oral History at the University of Hawaii at Manoa, points out that Parker Ranch on the Big Island of Hawaii was much larger than Lanai and owned by a single person, Richard Smart, until he died in 1992 and left it in a trust. Once 500,000 acres, it is now down to 130,000.

"Ownership of an island is an exotic notion. People think of 'Fantasy Island.' But if you look at it as a large tract of land, it's not that unusual," Nishimoto says.

Q:Who owns the rest of Lanai?

A: The state or county owns most roads, the airport, harbors and other public facilities. "The sale or exchange of land for various public services and benefits began with James Dole by the early 1930s and continued through the tenure of David Murdock," Maly says. "Murdock's primary transfer was based on securing development rights in exchange for conveyance of property and also relieved him of obligations to care for various facilities."

The county owns about 200 acres and leases property from Castle & Cooke including the fire station, pool, gym, softball field and recycling center. "The status of these leases will be among items of discussion with Larry Ellison," says Rod Antone, spokesman for the Maui mayor's office.

There are about 1,500 residences on Lanai. including 542 owner-occupied homes and about 100 condominiums. Some of the other homes are owned by Castle & Cook.

Q:Are the beaches public?

A: As in the rest of Hawaii, all beaches are public up to the high-water mark. Landowners are generally not required to provide beach access through their property, although native Hawaiians are given certain access rights. Counties can require developers to provide public beach access.

Q:How much does Castle & Cooke pay in property tax?

A: Although it owns 98 percent of the land, most of it is undeveloped and some is inaccessible. As a result its property was assessed last year at $325 million or just over half of the island's total of $622.5 million in assessed value. It paid $2.1 million in property taxes, about 56 percent of the island's total.

Q:What does Ellison plan to do?

A: He has not revealed specific plans. The PUC filing says he plans to invest at least $10 million over five years in the two water utilities as "contributions in aid of construction."

Kalani English, Lanai's state senator, says Ellison's personal representative told him he plans "no radical changes" and will try "to balance economics, land conservation and stewardship." English says Murdock sustained losses of $18 million to $25 million a year to keep the resorts going. "That's why Ellison is perhaps a good fit. He knows up front he can't turn it around in a day."

English says he was told that Ellison "will honor the union contracts" that cover most of Castle & Cooke's employees on Lanai.

Q:How do residents of Lanai feel?

A: "About one-third is very optimistic," says Riki Hokama, Lanai's county councilman. "They feel this is a new opportunity for the island. One-third feels it's going to be the same. One-third thinks it might be worse without Murdock."

Many hope Ellison will diversify the economy's dependence on tourism and stop the flight of residents.

English says he believes the island has lost more than 1,000 people since the 2010 census, based on consumption patterns, school enrollment and vacant homes. Hokama thinks only 500 have fled.

A brief history of Lanai's ownership

1848: King Kamehameha III institutes Western-style land ownership. Of 13 ancient land divisions, five are awarded to chiefs who had supported the king's father in unifying the Hawaiian island group; eight are retained by the government or king.

1862: Walter Murray Gibson arrives to reorganize a Mormon colony and buys one chief-owned plot for the church. He is later excommunicated for keeping the property in his name. Gibson later buys the other chief-owned lands, leases the king- and government-owned properties and begins sheep and later goat ranching.

1888: Gibson dies, leaves the island to his daughter and his son-in-law, Frederick Hayselden, who starts a sugarcane operation, which goes bankrupt.

1902: Charles and Louisa Gay purchase a portion of the Gibson-Hayselden estate, and within a few years they own virtually all of the island, including government lands. The Gays transition the ranches to cattle. Gay mortgages the property to William G. Irwin and Co., and when Gay runs into financial trouble, Irwin and partners foreclose, take over the island and form the Lanai Co.

1917: Frank and Harry Baldwin, sons of missionaries from Maui, acquire the island from Lanai Co.

1922: James Dole buys out the Baldwins for $1.1 million and starts what will become the world's largest pineapple plantation. Dole builds Lanai City, a harbor, plantation fields and other infrastructure. Farmworkers are brought in, mainly from the Philippines and Japan. Following a strike in 1951, planation employees are given the right to purchase their homes.

1961: Castle & Cooke buys out Dole. In 1973, it unveils plans to transition Lanai from pineapples to luxury resorts.

1985: David Murdock buys Castle & Cooke. It opens the Lodge at Koele in 1990 and the Manele Bay Resort in 1991. In 1992, the last pineapple harvest takes place.